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Mortgage approvals 'to be squeezed' as stricter rules bite

Threadneedle expects the approval rate for mortgages to “fall significantly” in the third quarter

Lenders are set to tighten the screw on tens of thousands of households seeking mortgages over the coming months,a Bank of England survey suggested today.

Threadneedle Street’s latest Credit Conditions Survey showed banks expect the approval rate for mortgages to “fall significantly” in the third quarter of the year, as the effects of stricter regulatory lending procedures bite.

Signs that lenders are already scaling back mortgage credit could stay the hand of the Bank’s financial policy committee, which had been widely expected to take further action to cool the booming housing market when it reports on Thursday.

The survey found demand for mortgages surged in the second quarter of the year and that lenders expected further increases over the next three months.

The Financial Conduct Authority introduced the Mortgage Market Review in April, which requires home loan applicants to answer more searching questions about their personal finances before being awarded credit.

The volume of approvals for house purchase were 17 per cent down from their January peak in April at 62,918, although prices were up 9.9 per cent year on year in the same year.

In a sign the recovery is finally encouraging businesses to borrow and invest, the survey also found demand for corporate credit increased “significantly” across companies of all sizes in the second quarter, with further growth anticipated.

Unlike with home loans, banks reported they expect to step up the provision of corporate loans over the next three months.

Surging GDP growth and rapidly falling unemployment has caused the Bank’s rate-setters to take a hawkish tone recently.

David Miles, one of the monetary policy committee’s most steadfast “doves”, said today he expected to vote for an increase in interest rates before next May, when his term ends.

Writing in the Daily Telegraph, Miles said: “It now seems to me much more likely that a normalisation of monetary policy starting at some point in my remaining year on the MPC will become appropriate.”

Markets have been left confused by dramatic shifts in tone from the Bank’s Governor, Mark Carney, on the likely timing of rate rises. At the Mansion House this month he said rates  could rise from their present historic floor of 0.5 per cent “sooner than markets currently expect”.